Use our 50/30/20 budget calculator to estimate how you might divide your monthly income into needs, wants and savings. This will give you a big-picture view of your finances. The most important number is the smallest: the 20% dedicated to savings. Once you achieve that, perhaps with an employer-sponsored retirement plan and other automated monthly savings transfers, the rest — that big 80% chunk — is up for debate.
That leaves 50% for needs and 30% for wants, but these are parameters you can tweak to suit your reality. For example, if you live in an expensive housing market, your monthly mortgage or rent payment might spill a bit into your "wants" budget. Budgets are meant to bend but not be broken.
Want expert help? Ask a Nerd directly
Simply send us your questions, and our dedicated in-house Nerds will provide you with thoughtful responses within 2 business days.
Our 50/30/20 calculator divides your take-home income into suggested spending in three categories: 50% of net pay for needs, 30% for wants and 20% for savings and debt repayment.
The 50/30/20 budget
Find out how this budgeting approach applies to your money.
The 50/30/20 rule is a popular budgeting method that splits your monthly income among three main categories. Here's how it breaks down:
Monthly after-tax income
Before you can slice up your 50/30/20 budget, you need to calculate your monthly take-home income. This figure is your income after taxes have been deducted. It's likely you'll have additional payroll deductions for things like healthinsurance, 401(k) contributions or other automatic payments taken from your salary. Don't subtract those from your gross (before tax) income. If you've lumped them in with your taxes, you'll want to separate them out — subtract only taxes from your gross income.
50% of your income: needs
Necessities are the expenses you can’t avoid. This portion of your budget should cover required costs such as:
Housing.
Food.
Transportation.
Basic utilities.
Insurance.
Minimum loan payments. Anything beyond the minimum goes into the savings and debt repayment bucket.
Child care or other expenses that need to be covered so you can work.
File your taxes with confidence
Register for a free NerdWallet account or sign in to gain access to an exclusive one-hour, previously recorded webinar about tax filing and tax planning strategies. Watch on demand!
Distinguishing between needs and wants isn’t always easy and can vary from one budget to another. Generally, though, wants are the extras that aren’t essential to living and working. They’re often for fun and may include:
Monthly subscriptions.
Travel.
Entertainment.
Meals out.
20% of your income: savings and debt
Savings is the amount you sock away to prepare for the future. Devote this chunk of your budget to paying down existing debt and creating a financial cushion.
How, exactly, to use this part of your budget depends on your situation, but it will likely include:
The 50/30/20 rule can be a good budgeting method for some, but it may not work for your unique monthly expenses. Depending on your income and where you live, earmarking 50% of your income for your needs may not be enough.
Our 50/30/20 calculator divides your take-home income into suggested spending in three categories: 50% of net pay for needs, 30% for wants and 20% for savings and debt repayment. Find out how this budgeting approach applies to your money. Monthly after-tax income.
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
It may not work for everyone. Depending on your income and expenses, the 50/30/20 rule may not be realistic for your individual financial situation. You may need to allocate a higher percentage to necessities or a lower percentage to wants in order to make ends meet. It doesn't account for irregular expenses.
Bottom Line. Living on $1,000 per month is a challenge. From the high costs of housing, transportation and food, plus trying to keep your bills to a minimum, it would be difficult for anyone living alone to make this work. But with some creativity, roommates and strategy, you might be able to pull it off.
Drawbacks of the 50/30/20 rule: Lacks detail. May not help individuals isolate specific areas of overspending. Doesn't fit everyone's needs, particularly those with aggressive savings or debt-repayment goals.
On a $60,000 salary, which roughly translates to $50,000 after taxes (depending on your location and tax rates), 60% would be about $30,000 per year, or $2,500 per month. Savings (20%): This portion should be allocated towards your savings, investments, emergency funds, or debt repayment.
If you make $3000 a month after taxes, then 50% ($1500) would go toward needs, the next 30% ($900) goes toward your wants or discretionary spending, and the remaining 20% ($600) goes toward your savings.
50% of your net income should go towards living expenses and essentials (Needs), 20% of your net income should go towards debt reduction and savings (Debt Reduction and Savings), and 30% of your net income should go towards discretionary spending (Wants).
Are you approaching 30? How much money do you have saved? According to CNN Money, someone between the ages of 25 and 30, who makes around $40,000 a year, should have at least $4,000 saved.
Risk of overspending. Allocating 30% of your income for nonessential wants is a large amount of money --especially compared to allocating only 20% toward savings. Don't blow your cash on things that aren't important. ...
Not rigid. People often struggle to manage their money because they lack a financial plan.
The 70-20-10 budget formula divides your after-tax income into three buckets: 70% for living expenses, 20% for savings and debt, and 10% for additional savings and donations. By allocating your available income into these three distinct categories, you can better manage your money on a daily basis.
Yes, the 50/30/20 rule can be used to save for long-term goals. Allocate a portion of the 20% to savings specifically for your long-term goals, such as a down payment on a house, education funds, or investments. The rule is intentionally meant to bring focus to savings.
“Where the 50/30/20 rule and the envelope system get complicated, the 80/20 plan gets simple. Instead of having to categorize every single expense into what is essential and what is not, you simply take 20% of your paycheck and deposit it directly into your savings account.
No problem. Here's a final rule of thumb you can consider: at least 20% of your income should go towards savings. More is fine; less may mean saving longer.
To start, averages, by definition, do not take into account the huge variations in what individuals do. Second, the financial obligations of today are vastly different than they were when the 30% rule was created.
Address: Suite 490 606 Hammes Ferry, Carterhaven, IL 62290
Phone: +8557035444877
Job: Forward IT Agent
Hobby: Fishing, Flying, Jewelry making, Digital arts, Sand art, Parkour, tabletop games
Introduction: My name is Otha Schamberger, I am a vast, good, healthy, cheerful, energetic, gorgeous, magnificent person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
